Territorial exclusivity in franchising: how can you protect it?

Before buying a franchise, check not only the address of your future premises, but also who will be allowed to operate under the same brand nearby. A franchise network should expand according to clear rules. Territorial exclusivity can protect your investment, but only within the limits set out in the agreement. An assurance from your franchise contact that “this area will be yours” does not explain the scope of that protection.

1. Establish exactly what exclusivity means

Exclusivity for a location is not the same as exclusivity for a territory. The former may cover only a specific address or shopping centre. The latter may require the franchisor not to open its own outlets or grant franchises to other businesses within a defined area. A priority right to open another outlet is different again: it gives you an opportunity to expand, but does not necessarily prevent the network from growing if you choose not to take it up.

Ask for an appendix containing a map and a description that clearly defines the boundaries. These can be based on streets, administrative boundaries or coordinates. If the territory is defined by a radius around the premises, the agreement must specify the point from which it is measured and how the distance is calculated. Wording such as “the area around the outlet” leaves too much room for dispute.

Also check whether the protection covers:

• outlets operated by the franchisor and other franchisees;
• outlets run by companies affiliated with the franchisor;
• shopping centre kiosks, vending machines, seasonal stalls and mobile outlets;
• the same product range or services offered in a different format under the same brand.

If the franchisor allows exceptions, they should be listed explicitly. A general reservation allowing it to develop “other sales channels” can significantly reduce the practical value of exclusivity.

2. Check the territory and sales channels before buying

Ask for a list of existing outlets and locations already allocated to other partners, even if they have not yet opened. Also establish whether discussions are under way about nearby outlets. A map showing only the operating network will not reveal commitments the franchisor has already made.

Visit the area and assess how customers naturally move through it. Two outlets on opposite sides of an administrative boundary may serve the same customer base. Conversely, a short distance on a map does not necessarily mean direct competition if a significant barrier makes travel between the premises difficult. The protected territory should therefore reflect the actual customer catchment area, rather than simply following the city's administrative divisions.

Discuss online sales, deliveries and business customers separately. Ask whether head office can target advertising at residents of your territory, who fulfils orders from that area and whether other partners can actively seek customers there. Do not assume that protection against a new outlet automatically covers all these activities.

Exclusivity does not guarantee demand or freedom from competition from other brands. If you are paying extra for it, agree a separate price and the date on which protection begins. Also check what happens to that payment if the promised scope of exclusivity is not provided.

3. Take Polish legislation and competition law into account

Poland has no dedicated statute comprehensively governing the formation and performance of franchise agreements. A franchise agreement remains an “unnamed contract”, meaning it is not a separately defined contract type under Polish law. It is governed primarily by the general provisions of the Polish Civil Code, including freedom of contract and the rules on liability for failure to fulfil contractual obligations. That freedom has limits, however: contractual terms must not conflict with legislation, the nature of the legal relationship or the principles of social conduct recognised under Polish law.

Territorial protection is also subject to Poland's Act on Competition and Consumer Protection and, where the conditions for their application are met, EU competition rules. An important reference point is Commission Regulation (EU) 2022/720 on the block exemption for vertical agreements.

In practice, it is necessary to distinguish between active sales, which involve deliberately targeting customers in a particular area, and passive sales, which respond to unsolicited customer enquiries. Not every sales restriction is permitted, and the scope for restricting passive sales is particularly narrow. A blanket ban on serving customers from outside an allocated territory is not a legally safe way to draft an exclusivity clause.

The clause should therefore be reviewed by a lawyer with expertise in competition law. A commitment by head office not to open another outlet and a sales restriction imposed on franchise partners require separate analysis.

4. Set out the conditions for retaining protection and responding to breaches

Exclusivity is sometimes conditional on performance. If the agreement sets minimum sales targets or requires you to open further outlets, check how performance is measured, the assessment period and your access to the relevant data. Establish how delivery delays or downtime caused by the franchisor will be treated.

Negotiate a requirement for advance notice if your protection is at risk, along with a realistic period in which to improve. Avoid provisions allowing head office to reduce your territory at its discretion on the basis of undefined “market potential”. Any boundary changes should follow a clearly specified procedure.

Also agree the consequences of a breach of exclusivity: how to report it, the deadline for a response and the remedies available. You could negotiate reduced fees, an appropriately drafted contractual penalty or a right to terminate the agreement in the event of a material breach. Without such provisions, claiming damages under the general rules may involve the difficult task of proving the amount of loss and its connection to the franchisor's actions.

Practical takeaway: before signing the agreement, make sure you have an agreed map, an exhaustive list of exceptions and a procedure for dealing with breaches. Only then can you assess whether exclusivity genuinely protects your investment.